Sugar tax in Zim leaves a bitter taste

A large number of retailers face financial uncertainty after it emerged that the Zimbabwe Revenue Authority is demanding value added tax on white sugar sales from as far back as February 2009, capitalising on a technicality that excluded white sugar from a zero-tariff regime introduced in 2004.

The move could significantly affect a number of companies, with industry consultants indicating that at least three Zimbabwe Stock Exchange-listed retail groups face a combined bill of nearly $30million for VAT on sugar sales for the past three years.

"The tax collectors are desperate for cash and they're looking for every possible loophole to pump money into the treasury," a consultant working for one of the retailers said.

A grocery shop operating under the Food World franchise said it had received a $200 000 bill from Zimra.

"We've not been charging VAT on white sugar since 2004. We've had no problem with [revenue authority] Zimra until September last year, when they regularised an anomaly that excluded white sugar from the zero tariff," said a manager at the shop.

When VAT was introduced in 2004, Zimra indicated that all types of sugar would be zero rated.
Yet when the general regulations – which listed all zero-rated products was gazetted – only brown sugar was listed, technically putting white sugar under the standard rate.

To rectify the error, the government gazetted a statutory instrument in September last year to zero rate white sugar with effect from August 1 2012.

Incomplete information
A source said that, under pressure from the finance ministry to boost revenue, Zimra seized on the technicality to demand that producers and suppliers of white sugar account for output tax on their sales of white sugar from February 2009 to July 2012. Retailers, producers and importers say they had not charged VAT on white sugar during that period, based on Zimra's undertaking that sugar would be zero-rated.

In a standard letter sent to all retailers and sugar producers on November 29 2012, Zimra's domestic tax division requested monthly information dating from February 1 2009 to July 31 2012 for VAT charged or paid for both white and brown sugar.

All retail operators and sugar producers were requested to provide Zimra with the information relating to imports, local purchases and sales, as well as export sales, by December 4 2012.

The retailers and producers, which were told that they would be punished for providing false or incomplete information, claim that they obliged, only to receive hefty VAT bills demanding outstanding payments dating back to February 1 2009 – around the same time as the government officially ditched the Zimbabwe dollar in favour of the US dollar.

An executive of a Zimbabwe Stock Exchange-listed retailer said: "We are being asked to pay VAT that we never charged customers. Zimra is bankrupting businesses and the impact could be less revenue in future if some companies close or make losses."

A Zimra official who declined to be named said the authority expected to mop up about $50-million from backdated VAT on white sugar alone. "It's the amount owed plus a penalty of 100%," he said.

Zimra's head of domestic taxation refused to comment, but an executive in the department, who asked not to be named, said Zimra is correctly applying the regulations in collecting VAT on the importation of white sugar.

There is a possibility that sugar prices will rise to mitigate losses arising from Zimra's latest move.